Pakistan’s mounting financial troubles may serve as an early warning sign for other nations participating in China’s Belt and Road Initiative (BRI). The South Asian nation’s current economic crisis stems largely from its involvement in Beijing’s ambitious
infrastructure program, raising questions about the sustainability of similar arrangements across the developing world.
At the heart of Pakistan’s predicament lies an oversized power infrastructure project implemented through the BRI roughly ten years ago. The initiative, which cost approximately $25 billion, has saddled Pakistan with unsustainable debt obligations and operational commitments that far exceed the country’s actual needs and
capabilities.
The terms of the agreement require Pakistan to purchase all
electricity generated by Chinese-managed facilities for 40 years, despite the fact that the installed capacity surpasses the nation’s requirements by roughly 40 percent. Additionally, Pakistan must guarantee Chinese state companies a 34 percent return on investment while repaying the substantial loans within just 10 years.
These burdensome conditions have forced Pakistani authorities to implement dramatic increases in electricity prices. Currently, the average Pakistani family must pay around $60 monthly for basic electrical needs like lighting, refrigeration, and fan operation – an extraordinary burden in a country where monthly per capita income averages only $125.
The situation has already resulted in Pakistan falling behind on its payments, with arrears to Chinese state banks reaching $1 billion. The financial strain is set to worsen with an additional $9 billion owed for two new Chinese nuclear facilities.
The BRI’s fundamental structure appears to be at the root of these problems. Under the initiative, China approaches developing nations with offers to finance and construct infrastructure projects, utilizing Chinese banks, contractors, and management. While this arrangement may seem attractive initially, it creates a significant power imbalance that favors Beijing’s interests.
Should recipient nations default on their loans, ownership of the infrastructure reverts to China. Even when countries manage to maintain payments, they remain dependent on Chinese expertise and support to operate the facilities. Furthermore, since project selection is driven by political and diplomatic considerations rather than economic viability, many installations prove inappropriate for local needs or market conditions.
Pakistan’s experience is not unique within the BRI framework. Sri Lanka has already defaulted on its obligations, while several African nations have been forced to renegotiate their terms. Chinese President Xi Jinping has had to extend additional financing to prevent some African participants from abandoning the program entirely.
The widespread challenges faced by BRI participants suggest systemic flaws in the initiative’s design. These mounting difficulties could have serious implications not only for recipient nations but also for China itself, as its economy – already burdened by high debt levels and underperformance – may struggle to absorb the financial impact of failing projects and loan defaults.
The Pakistani case study reveals how the BRI’s political motivations often override economic considerations, resulting in oversized projects that create unsustainable financial obligations for participating nations. As more countries encounter similar
difficulties, Pakistan’s experience may indeed prove to be the proverbial canary in the coal mine, warning other nations about the potential risks of deep involvement in China’s ambitious
infrastructure initiative.